Hmmm. Seems like our solar industry’s crystal ball is a bit blurry these days. Or maybe we don’t like the picture. With prices for panels continuing to decline, and players entering and leaving the industry like a game of musical chairs, the solar industry of the future won’t resemble the industry of the past. We’re sailing into uncharted waters. It’s a good thing that we’re looking forward because the distribution channels of the future are likely to be quite disruptive (in a positive way) for our industry.

Two driving factors – lower prices and new distribution channels – remind me of the computer industry’s transition from mainframes in the 1970s to personal computers in the 1980s. Like the processors in PCs, solar panels themselves are become much cheaper. But as with PCs, solar power won’t become a mainstream product just because a few components are inexpensive; instead, new distribution channels will drive the industry towards mass-market adoption.

In 2008 the average price of a residential system was $8.00/watt. Even if the panels and inverters were free (amounting to about $4/watt), we still have indirect and direct labor costs of about $4.00/watt. Too expensive and too complicated for a mass market (we didn’t see very many home mainframe computers, either).

Simple, easy-to-install systems sold through new distribution channels have the potential to reduce these labor costs to $1.00/watt.  Within a year or two it’s reasonable to expect panel prices in the range of $1.75/watt. Add in another $0.75/watt for an inverter and other BOS components and we’re at $2.50/watt. If systems were really easy to install, then electrical and HVAC contractors could join our installation workforce – doing all the installation related work for $0.75/watt. If systems were inherently safe we wouldn’t need any code-compliance paperwork, so the documentation can be drastically simplified and completed for $0.25/watt. That adds up to $3.50/watt – a price point at which existing tax credits and high electric rates would provide sufficient economic justification on their own.

The technology changes that will get us to this low price all relate to drastically simplifying the sales, design, engineering and installation costs for a system. Plug and play AC panels are the best way to achieve this goal. In the mean time, our industry is likely to continue with three distinct distribution channels: utility, commercial and residential. But it’s also likely that a new channel will emerge to serve the low end of the market – much the same as the personal computer industry grew in the early ‘80s out of the mainframe industry.

The area where low cost easy-to-install systems will have the most impact is for smaller residential and Do It Yourself (DIY) installations. Because of the dangers and complexity of high voltage DC systems, DIY solar has traditionally been inconceivable. But when a 1kw “solar in a box” product becomes available, it will open up the low end of the market just as PCs brought computing to the masses.

There are two types of companies that are likely to serve this new channel: traditional electrical or HVAC distributors, and big box hardware stores. They are both characterized by convenience and low prices, and are where the solar installers of the future are likely to shop. For years the solar industry has attempted to sell through these channels, but the parts count, design requirements and mounting systems have made it unfeasible to stock traditional DC panels and inverters. What used to take days to design, permit, order and receive should now fit in a single standardized retail box that a contractor loads in a truck in the morning on the way to the jobsite – like standard electrical supplies.

From an installation and a cost standpoint, most qualified electrical or HVAC contractors will have the right skills. Many “handy” homeowners will also take the plunge; perhaps they’ll just hire an electrician for $250 to install a dedicated PV branch circuit to the roof. The remaining work should not be much more difficult than installing a ceiling fan.

What’s extraordinarily significant about this new “contractor-retail” channel is that, because of the inherent safety and ease of installation of plug & play systems, there will be very little motivation for customers to go through the existing blizzard of permitting paperwork and interconnection documents. As a result, the indirect costs related to this paperwork will be eliminated, with negligible (or in the case of DIY) zero direct labor costs. Ironically, a professional solar contractor may still need to be hired to help with the paperwork to get the incentive – because that is the only remaining complicated part of an installation.

In this new channel – with labor and paperwork costs effectively reduced to zero, net system costs will be lower than the fully loaded costs of current utility, commercial and high-end residential installations. These lower net costs, coupled with typically higher marginal electric rates, will create short paybacks and lead to rapid market adoption.  Customer buying habits may also change:  small, simple PV systems will be purchased on a credit card. Need more power?  Buy another 1kw of panels with your next paycheck.

Just as the availability of affordable home computers created the desktop software and add-on components industry, this new low-end solar channel is also likely to spawn an ecosystem of related companies and services. Naturally, electrical and HVAC contractors will participate in the solar boom. Supplemental services such as monitoring, panel cleaning, troubleshooting and energy management capabilities are likely to find a market.

Plug & play solar panels will change our industry in ways we never expected. It’s going to be a faster ride to grid parity than many people expected.